Final Results
30 April 2009
Walcom Group Limited
("Walcom" or the "Group" or the "Company")
Final results for the year ended 31 December 2008
CHAIRMAN'S STATEMENT
I have pleasure in presenting the final results for the year ended 31 December
2008.
Overview of Results
Having taken into account the results of extra investment in our Thailand
subsidiary, turnover and gross profit in the year under review showed
considerable improvement compared with 2007. However, owing to the aggregate
effect of escalating raw material and production costs and the appreciation in
value of the Renminbi, the gross profit margin has fallen to 56.5 per cent.
(2007: 64.8 per cent.). In view of the difficult operating environment ahead,
the Group has decided to focus its financial resources on business operations
and discontinue certain non-material patent applications. This has resulted in
a write off of HK$2.3 million of patent costs capitalised in previous years.
Share option expenses of HK$0.5 million were amortised during the year relating
to options issued in July 2008. Consequently, the loss before tax is
considerably higher than that of last year.
The results are summarised as follows:
Year ended Year ended Change
31 December 31 December
2008 2007
HK$'000 HK$'000 per cent.
Turnover 26,027 18,454 41
Gross profit 14,707 11,966 23
Operating loss (8,902) (5,639) 58
Net finance income 2 367 (99)
Share of (loss)/profit of associates (12) 507 n/a
Loss before tax (8,911) (4,764) 87
Net asset value per share (HK$) 0.27 0.33 (18)
Outlook
The global financial crisis and liquidity issues in credit markets have been
well documented and although world-wide financial conditions appear to have
shown a degree of improvement after the efforts of various central banks, we
are now facing a world-wide economic recession, recovery from which is still
uncertain. In view of the present economic climate and in order to be closer to
its operational base, which services its key market, the Group has relocated
its Hong Kong office to Shanghai. The move will cut administration costs and,
therefore, improve the Group's operating efficiency.
In the last annual report, we stated that we considered that there are new
opportunities for our business as the world is facing a crisis in food
production as well as the threat of avian influenza. This is still true despite
the fact that the world's attention has been drawn to the financial crisis.
* In 2008, the Group reported that with the help of various sophisticated
computer simulation models, some feed companies had started to use the
Group's products to reformulate their own production mixes in order to
reduce the level of corn consumption while maintaining the same energy
utilisation and hence has lead to a reduction in manufacturing costs. This
trend continued in the period under review and the Group's customer base in
this category is growing. The Group is going to expand the scale of this
sales strategy and a sales campaign named the Energy Saving Program (the
"ESP") will be launched in the third quarter of 2009. By launching the ESP
campaign successfully, the Board anticipates that demand for Walcom's
products will increase significantly.
* The threat of avian influenza to the world's population continues to be
unresolved. Viral attacks on the swine population in Asia and China are
still present and these threats may create greater demand for the Group's
animal husbandry immunity enhancing products.
Recent Developments
* Sales in Philippines have shown slight growth despite the global recession.
The Board expects this to continue in 2009.
* In addition to the effects of global economic conditions, Thailand's
economy has been badly affected by the continuous political turmoil in the
country. The Directors expect that sales demand will improve once the
political situation has stabilised.
* The Board believes that there is a potentially large market for the Group's
products in Vietnam, as there is considerable room for technical
improvement in its swine and prawn feed markets. We have started a local
product registration process, after which product trials can take place and
sales can be made into the market.
* In order to further cut costs, the Group has changed its auditor to Lau and
Au Yeung C.P.A. Limited, which is a highly reputable accounting firm in
Hong Kong experienced in dealing with listed clients.
* In October 2008, the Group acquired the entire issued share capital of
Beijing New World Bio-Technology Company Limited, which is engaged in sales
of Chinese herb and natural plant extracts. Unfortunately, its business has
been severely affected by the global economic situation and the Directors
have now decided to suspend its operations until signs of improvement are
seen.
Patents
At the end of 2008 the Group had been granted 32 patents in respect of:
* its core Cysteamine technology in China, Hong Kong, North Korea, New
Zealand, Ukraine, Russia, South Africa, Australia, India and South Korea;
* poultry feed in the UK, North Korea, Taiwan, Hong Kong, Russia, China and
Australia;
* dairy cow feed in New Zealand, the UK, Hong Kong, Europe, Mexico, India,
China and Russia;
* antibodies to adipose tissues in the UK;
* fish feed in the UK, Hong Kong, Indonesia and Russia; and
* shellfish feed in Europe.
The Directors expect further patents to be granted in the future in line with
the policy of the Group to pursue wide patent coverage in places where the
Board believes there will be significant demands for the Group's products.
Debt
In January 2009, the Group repaid in full the bank loan of HK$1,160,000 taken
out in 2007 for the purpose of the factory relocation in Shanghai. The Group is
free of debt and currently has a cash balance of HK$3.7 million.
Dividend
The Directors do not recommend any dividend payment for the year ended 31
December 2008.
Annual General Meeting
The Annual General Meeting will be held at the offices of the Company's
solicitors, Richards Butler in Hong Kong at 2:30pm on Friday 29 May 2009.
On behalf of the Board, I would like to express my sincere thanks to the
management team and staff, professional advisers and shareholders for their
continuous support during the year. Although the world economy is being hit by
the unprecedented financial crisis, the Directors are confident that the Group
can achieve success in its business and maximise the return for the
shareholders.
Eddie K.M. Chan
Chairman
30 April 2009
Consolidated income statement
For the year ended 31 December 2008
Note 2008 2007
HK$ HK$
Revenue 26,027,300 18,453,608
Cost of sales (11,320,031) (6,487,430)
Gross profit 14,707,269 11,966,178
Other income 204,964 788,166
Research and development expenses (1,418,445) (1,207,926)
Selling and distribution expenses (7,705,042) (5,590,529)
General and administrative expenses (14,690,786) (11,594,555)
Loss from operations (8,902,040) (5,638,666)
Net finance income 2,475 367,286
Share of (loss) / profit of associates (11,523) 507,362
Loss before income tax (8,911,088) (4,764,018)
Income tax expense 2 (133,440) -
Loss for the year (9,044,528) (4,764,018)
Attributable to:
Equity shareholders of the Company (9,297,050) (4,764,018)
Minority interests 252,522 -
Loss for the year (9,044,528) ( 4,764,018)
Loss per share - basic, HK cents 4 (14.16) (7.34)
- diluted, HK cents (14.16) (7.34)
Consolidated balance sheet as at 31 December 2008
2008 2007
HK$ HK$
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 2,646,404 1,243,656
Patents 5,558,118 6,967,172
Goodwill 127,857 -
Investment in associates - 718,078
8,332,379 8,928,906
CURRENT ASSETS
Inventories 1,420,547 1,551,916
Trade and other receivables 3,968,044 2,424,421
Amounts due from associates 2,229,334 3,552,714
Tax recoverable 212,071 -
Cash and cash equivalents 8,328,032 9,144,259
16,158,028 16,673,310
TOTAL ASSETS 24,490,407 25,602,216
EQUITY
Share capital 688,344 649,109
Reserves 17,704,252 20,796,592
Total equity attributable to equity holders 18,392,596 21,445,701
of the Company
Minority interests 375,868 -
TOTAL EQUITY 18,768,464 21,445,701
NON-CURRENT LIABILITIES
Bank borrowings - 1,160,000
CURRENT LIABILITIES
Trade and other payables 3,042,923 1,898,530
Tax payables 17,928 -
Bank overdrafts 1,501,092 1,097,985
Bank borrowings 1,160,000 -
5,721,943 2,996,515
TOTAL LIABILITIES 5,721,943 4,156,515
TOTAL EQUITY AND LIABILITIES 24,490,407 25,602,216
NET CURRENT ASSETS 10,436,085 13,676,795
TOTAL ASSETS LESS CURRENT LIABILITIES 18,768,464 22,605,701
Consolidated statement of changes in equity
For the year ended 31 December 2008
Share Share Merger Share-based Exchange Accumulated Total Minority Total
capital premium reserve compensation reserve losses HK$ interest equity
HK$ HK$ HK$ reserve HK$ HK$ HK$ HK$
HK$
At 1 January 649,109 89,842,770 23,852,469 - 125,768 (88,593,217) 25,876,899 - 25,876,899
2007
Exchange - - - - 332,820 - 332,820 - 332,820
difference on
translation of
financial
statements of
overseas
subsidiaries
Loss for the - - - - - (4,764,018) (4,764,018) - (4,764,018)
year
Total - - - - 332,820 (4,764,018) (4,431,198) - (4,431,198)
recognised
loss for the
year
At 31 December 649,109 89,842,770 23,852,469 - 458,588 (93,357,235) 21,445,701 - 21,445,701
2007
At 1 January 649,109 89,842,770 23,852,469 - 458,588 (93,357,235) 21,445,701 - 21,445,701
2008
Exchange - - - - 248,363 - 248,363 (9,454) 238,909
difference on
translation of
financial
statements of
overseas
subsidiaries
Loss for the - - - - - (9,297,050) (9,297,050) 252,522 (9,044,528)
year
Total - - - - 248,363 (9,297,050) (9,048,687) 243,068 (8,805,619)
recognised
loss for the
year
Acquisition of - - - - - - - 791,305 791,305
subsidiaries
Shares issued 39,235 5,455,874 - - - - 5,495,109 - 5,495,109
Recognition of - - - 500,473 - - 500,473 - 500,473
equity-settled
share-based
payments
Dividends to - - - - - - - (658,505) (658,505)
minority
interests
At 31 December 688,344 95,298,644 23,852,469 500,473 706,951 (102,654,285) 18,392,596 375,868 18,768,464
2008
Consolidated cash flow statement
For the year ended 31 December 2008
2008 2007
HK$ HK$
Cash flow from operating activities
Loss for the year (8,911,088) (4,764,018)
Amortisation of patents 471,749 398,519
Interest received (119,571) (372,490)
Depreciation 456,822 354,968
Foreign exchange loss, net 85,767 261,730
Interest paid 117,096 5,204
(Gain) / loss on disposal of property, plant and (47,850) 5,995
equipment
Patent written off 2,307,615 -
Inventories written off 288,335 -
Impairment on goodwills 2,658 -
Impairment loss on trade receivables - 143,042
Issuance of share-based compensation 500,473 -
Share of loss / (profit) of associates 11,523 (507,362)
Operating loss before working capital changes (4,836,471) (4,474,412)
Decrease / (increase) in inventories 38,140 (945,388)
Decrease in trade and other receivables 1,125,234 209,873
Decrease / (increase) in amount due from associate 1,231,947 (181,536)
- trade related
Decrease in trade and other payables (421,329) (5,020,875)
Net cash used in operations (2,862,479) (10,412,338)
Corporate income tax paid (327,583) -
Interest paid (117,096) (5,204)
Net cash used in operating activities (3,307,158) (10,417,542)
Cash flow from investing activities
Payment for patents (1,370,310) (1,802,439)
Purchases of property, plant and equipment (1,184,614) ( 534,855)
Proceeds from sales of property, plant and 50,000 1,300
equipment
Dividends received from an associate - 371,855
Acquisition of subsidiaries, net of cash acquired 4,698,585 -
Amounts due from associates - non-trade related 91,433 185,428
Interest received 119,571 372,490
Net cash generated from /(used in) investing 2,404,665 (1,406,221)
activities
Cash flow from financing activities
Increase in restricted balance of cash and cash - (3,000,000)
equivalents
Dividends paid to minority interests (439,004) -
Proceeds from new bank borrowings - 1,160,000
Net cash used in financing activities (439,004) (1,840,000)
Net decrease in cash and cash equivalents (1,341,497) (13,663,763)
Cash and cash equivalents at the beginning of the 5,046,274 18,704,238
year
Exchange gains on cash and cash equivalents 122,163 5,799
Cash and cash equivalents at the end of the year 3,826,940 5,046,274
Notes to the consolidated financial statements
For the year ended 31 December 2008
1. Publication of non-statutory accounts
The financial information set out in this preliminary announcement does not
constitute statutory accounts.
The financial information for the period ended 31 December 2008 has been
extracted from the Company's financial statements to that date which have
received an unqualified auditors' report.
2 Income tax expense
2008 2007
HK$ HK$
Current income tax
- Thailand corporate income tax 133,440 -
(a) Taxation for the Company
No provision for profits tax has been made for the Company as it is exempted
from taxation in the British Virgin Islands.
No deferred taxation has been provided as the Company has no material
unprovided deferred tax assets or liabilities which are expected to be
crystallized in the foreseeable future (2007: HK$nil).
(b) Taxation for the Group
(i) Taxation on overseas profits has been calculated on the estimated
assessable profit for the year at the rate of taxation prevailing in the
countries in which the Group companies operate. The income tax expense stated
in consolidated income statement represented the corporate income tax arisen
from the business of a subsidiary operating in Thailand.
On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008
which reduced corporate profits tax rate from 17.5 per cent. to 16.5 per cent.
effective from the year of assessment 2008/2009. Therefore, Hong Kong Profits
Tax is calculated at 16.5 per cent. (2007: 17.5 per cent.) of the estimated
assessable profit for the year. However, no provision for Hong Kong profits tax
has been made (2007: HK$nil) as the Group did not have assessable profit
subject to Hong Kong profits tax for the year.
No provision for foreign enterprise income tax ("FEIT") in the People's
Republic of China ("PRC") has been made (2007: HK$nil) as Shanghai Walcom
Bio-Chem Co., Ltd. ("Shanghai Walcom") and Beijing New World Bio-technology
Co., Ltd, wholly owned subsidiaries operating in Shanghai and Beijing,
respectively in the PRC, have agreed tax losses brought forward in excess of
the assessable profits for the FEIT purposes for the year.
Pursuant to the relevant income tax rules and regulations in the PRC, Shanghai
Walcom is granted certain tax relief whereby it is exempted from FEIT for the
first two years and 50 per cent. reduction for the following three years
commencing from the first profitable year of operation after fully set off
against the accumulated losses brought forward.
On 16 March 2007, the National People's Congress approved the Corporate Income
Tax Law of the People's Republic of China ("the new tax law"), which will take
effect on 1 January 2008. Under the new tax law, the PRC income tax rate will
be gradually increased to a standard rate of 25 per cent. for all domestic and
foreign enterprises over the next five years with effective from 1 January
2008. According to the Circular 39 passed by the State Council on 26 December
2007, the tax exemption and reduction will be terminated latest by 2012.
Accordingly, Shanghai Walcom is exempted from PRC income tax for the years from
1 January 2008 to 31 December 2009, followed by a 50 per cent. reduction in the
tax rate for the remaining three years from 1 January 2010 to 31 December 2012.
The applicable income tax rate would be 11 per cent., 12 per cent. and 12.5 per
cent. for the year 2010, 2011 and 2012 respectively.
(b) Taxation for the Group (continued)
2008 2007
HK$ HK$
Loss before income tax (8,911,088) (4,764,018)
Share of (loss)/ profits of associated companies (11,523) 507,362
(8,899,565) (5,271,380)
Notional tax credit on loss before income tax
calculated
at the rates applicable to profits in the countries (1,470,328) (995,942)
concerned
Tax effect of:
Different income tax rates in other countries 10,038 -
Expenses not deductible for tax purpose 1,259,367 759,514
Income tax exemption (259,081) -
Non-taxable revenue - (83,997)
Temporary differences not recognised 385 1,603
Prior years' tax losses utilised this year - (460,680)
Unused tax losses not recognised 593,059 779,502
Income tax charges 133,440 -
(iii) A deferred tax asset amounting to HK$7,511,190 (2007 : HK$8,465,000) in
respect of tax losses of a subsidiary incorporated in Hong Kong of
approximately HK$45,522,000 (2007 : HK$48,192,000) has not been recognised in
the financial statements as it is not certain that future taxable profit will
be available against which these losses can be utilised. Tax losses of a
subsidiary incorporated in the PRC of approximately HK$2,598,000 and
HK$2,337,000 will expire at the end of years 2010 and 2011 respectively. The
tax losses do not expire under the current tax legislation. Other temporary
differences are not material.
3 Dividends
The Company does not recommend the payment of any dividend for the year ended
31 December 2008 (2007: HK$nil).
4 Loss per share
(a) Basic loss per share is calculated by dividing the Group's loss
attributable to equity shareholders of the Group of HK$9,297,050 (2007: loss of
HK$4,764,018) by the weighted average number of 65,661,287 ordinary shares in
issue during the year (2007: 64,910,891 shares).
Weighted average number of ordinary shares
2008 2007
Issued ordinary shares at 1 January 64,910,891 64,910,891
New issue during the year 750,396 -
Weighted average number of ordinary share for the 65,661,287 64,910,891
year
(b) Diluted loss per share
The diluted loss per share is calculated by dividing the Group's loss
attributable to ordinary equity shareholders of the Company of HK$9,297,050
(2007: HK$4,764,018) by the weighted average number of 65,661,287 ordinary
shares during the year adjusted for the number of dilutive potential shares
under the share option scheme (2007 : 64,910,891).
5. Copies of the Report and Accounts
Copies of the Report and Accounts will be sent to shareholders shortly and will
be available from the principal place of business of the Company, Part D,
Mingtai Bldg, No 351 Guo Shou Jing Road, ZJ Hi-Techn Park, Shanghai, 201203
China, and on the Company's website www.walcomgroup.com.
Enquiries:
Walcom Group Ltd +852 2494 0133
Francis Chi (Chief Executive Officer)
Albert Wong (Chief Financial Officer)
John East & Partners Limited +44 20 7628 2200
Bidhi Bhoma
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